LLC’s, LLP’s, and Partnerships
About LLC’s, LLP’s and Forming a Partnership
Limited Liability Corporations (LLCs), Limited Liability Partnerships (LLPs) and General Partnerships are all taxed in the same manner. Choosing one of these types as a business entity would be a poor selection for a business such as a distribution business, as they will all result in higher taxes with no additional advantages for the distributor.
Generally a business which is an LLC, LLP, or Partnership will pay higher taxes with no additional advantages as opposed to being an S Corporation. A Limited Partnership is also an option that could be explored when certain partners want to limit their liability and exposure.
Below are some of the reasons you might want select an LLC or LLP as your entity choice:
- If you were a lawyer or physician’s practice then all of the partners’ personal assets are at risk if one partner does something wrong, while if an LLC or an LLP, only the offending partners personal assets would be at risk. This is because of the professional service statutes for these type of professionals, but these rules do not relate to a distribution business, for example.
- If you were an real estate developer and you had a piece of land that had dramatically increased in value, you can transfer that property to an LLC, LLP, or Partnership without having to pay any capital gains tax. Also with these entity types, you can take shareholder distributions that are not based upon ownership, whereas in an S or a C Corporation they have to be. Again, this does not relate to a distributor.
If you have set up as one of these entity types, it might be advantageous to consider a tax-free merger into an S Corporation which will allow you to retain all the legal contracts, etc. of your present entity while switching to the tax advantages of being an S Corporation.
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